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How to be better prepared for volatile times – five lessons I have learned in Uruguay

Economic and political upheaval can be set off almost anywhere and can strike suddenly with little or no advance warning. It seems that societies that have experienced volatility in recent times are better adapted to deal with it. While societies that have experienced little volatility for a longer period of time tend to trust the status quo to take care of it.
I grew up in the U.S. where I experienced much less volatility than people my age who grew up in Uruguay.

The first half of the 20th Century is known as Uruguay’s Golden Era. It was a time when Uruguay developed into one of the wealthiest nations on earth. And, Uruguay is doing well now. Tourism, construction, and agriculture are all booming. Foreign investment is high and unemployment is low.

However, between Uruguay’s Golden Era and the last decade of economic growth, there was a 40-year period when the country experienced a lot of volatility. During this time the economy faltered, there was a communist uprising, a military government, a new constitution, and severe inflation. Then, just when things seemed to be finally getting better, there was the 2002 regional financial crisis,

The purpose of this article is to describe five cultural characteristics that I have observed in Uruguay that are different than what I experienced and observed growing up in the U.S. All of which I believe contribute to a better ability to deal with economic and political volatility.

The homeownership rate in Uruguay is almost identical to the homeownership rate in the U.S. Homes in Uruguay tend to be smaller and more rustic and are owned free and clear. Homes in the US tend to be much larger. On the average, U.S. homeowners have 50% equity in their home.

During times of broad economic hardship in Uruguay, people will defer home maintenance, and after a long period of not being able to pay homeowner dues, a building’s owner’s association may force the sale of an apartment. However, the great majority of Uruguayan homeowners have no mortgage, and therefore no risk of a bank foreclosure.

2) Invest in family“The only rock I know that stays steady, the only institution I know that works is the family.” Lee Iacocca

In Uruguay it is common for extended families to come together on Sundays and stay in regular contact throughout the week. Meaningful connections and emotional support are common characteristics of the Uruguayan family.

Several Uruguayan friends have told me stories about how their families worked together as a team to meet and overcome hard times.

Government programs and entitlements are nice, but when the economy or a government falters, family is the social institution that is left.

3) Develop and maintain international connections “Tank, I need an exit!... Fast!”The Matrix

A large percentage of Uruguayans form international connections by studying abroad, traveling, connecting on the Internet, or by staying in contact with Uruguayan friends and family members who are living outside of Uruguay.

Learning about other places and cultures gives us a bigger picture of the world we live in. Additionally, having connections abroad can provide a hedge against hard times at home.

During episodes of economic and political volatility, many Uruguayans who formed international connections had the opportunity to leave Uruguay to find greater safety, stability, and economic opportunities. Fifteen percent of Uruguayans (600,000) live and work abroad; many of these hold multiple residencies and passports. Popular destinations have been Spain, Italy, Australia, the United States, and Canada.

As the economic climate has changed in Western Europe and the U.S., many Uruguayans who have been living abroad are returning to Uruguay.

4) Develop a side-business and stay active producing income as long as you can“If money is your hope for independence you will never have it. The only real security that a person will have in this world is a reserve of knowledge, experience, and ability.” Henry Ford

From my personal observations, people in Uruguay seem more likely to develop supplemental income streams and stay busy making money after retiring from one career.

People do a great variety of things to make extra money. People who have finished one career may sell real estate, manage a few properties, or perform some type of maintenance.

Some people who live in large apartment buildings bake or make a specialty dish they sell to other people living in their building. People sew, repair, make or find things to sell, or give lessons in their home.

The Uruguayan government provides benefits and a social net for people who work. However, besides having some extra cash, maintaining additional income streams provides a greater level of self-reliance. If someone loses a job or taxpayer supported services don’t come through, people have a ready way to put food on the table.

5) Consciously choose your currency and investments “How many millionaires do you know who have become wealthy by investing in savings accounts? I rest my case.”Robert G. Allen

Since 2004, the Uruguayan peso has been a relatively strong currency. But before that, Uruguayans experienced decades of local currency devaluations. In 1973 and in 1993 the inflation got so bad that the currency was reset with 1,000 existing pesos being traded in for one new peso. The currency also suffered a 50-percent drop from the spillover of Argentina’s 2002 financial crash.

Uruguayans take it upon themselves to choose the best currency and investments to protect their earnings. Many trade newly earned Uruguayan pesos for US dollars, which had a long history of greater stability. In fact, Uruguayan banks allow depositors to choose to hold their deposits in accounts denominated in Uruguayan pesos, US dollars, or the euro. Although the Uruguayan peso has been strong the last eight years, the majority of bank deposits in Uruguay are still in US dollars.

With the recent concerns about the US dollar and euro, some Uruguayans with means are selecting gold coins and bullion as the most stable form of currency for longer holding periods. Some of the many cambios (businesses that exchange currencies) sell gold coins and offer safe deposit boxes.

Commodities and various forms of useful real estate are currently popular forms of investment in Uruguay.

Summary
Uruguayans believe in the role of government to provide stepping stones of opportunity such as taxpayer-supported education, the safety nets of healthcare and disability coverage, and the security of retirement payments. At the same time, they understand that a smoothly functioning economy and government may not always be the case. And in the end, an individual’s wellbeing and security comes down to self-reliance.

7 comments:

Anonymous
said...

Well, as a native uruguayan I only can say yes, you are completely right! And I believe this way to get ready for trouble has its source in the origin of the population here. Many people came here at the beginnig of the XX century running away from the poverty, intolerance and war in old Europe. So they knew very well what's really misery and hunger...

No, I have to be in Buenos Aires for now. But I miss my wonderful Uruguayan friends. I do return now and then for a few days and always feels good to be back. Buenos Aires is a beautiful place as well but there is something special about Uruguay.